EDITORIAL : Corporate governance needs work

Sun, May 22, 2011 - Page 8

In Taiwan, listed companies usually hold their annual general meeting (AGM) in May or June in order to present to their shareholders their performance and outlook, as well as to answer shareholder questions.

The problem is that many shareholders have found it difficult to attend the AGMs and are therefore unable to exercise their rights. This is because some listed companies schedule their AGMs according to the lunar calendar, choosing specific dates that are said to be auspicious. Despite widespread criticism that such practices breach shareholders’ rights and interests as well as infringe on corporate governance principles, in the past few years it has remained common to see hundreds of listed companies holding their AGMs on the same date. On June 13, 2008 there were, believe it or not, more than 600 listed companies holding an AGM.

However, consulting the lunar calendar to set a date for an AGM could just be a way for companies to discourage shareholders from attending. A conspiracy theory might propose that companies dislike “unwelcome shareholders” making embarrassing statements or throwing challenging questions at executives during meetings. Therefore, scheduling all the AGMs on the same date could either exhaust shareholders or make it impossible for them to attend.

To find a solution to this scheduling problem, the Financial Supervisory Commission (FSC) has since last year allowed only 200 listed companies to hold an AGM on any single date. Beginning this year, absentee shareholders can also use electronic voting to have a say on who sits on the board and other matters that affect their interests. Based on the FSC’s proposal, listed companies that have market capitalization of NT$10 billion (US$347.6 million) and above would be required to adopt electronic voting measures from next year.

These efforts to help shareholders deal with AGM scheduling are just the first steps toward improving corporate governance. However, a draft amendment to the Company Act (公司法) passed by the Legislative Yuan’s Economics Committee on Thursday may have achieved the opposite effect, as the amendment restricts shareholders from raising motions during an AGM if they own less than 1 percent of shares in the listed company.

The spirit of the amendment is to maintain order at listed companies’ AGMs and to prevent the meetings from descending into chaotic scenes with “unwelcome shareholders” deliberately tabling numerous motions to disrupt the meetings. The government has claimed that Taiwan is not the only country to restrict minority shareholders from raising motions during AGMs; many foreign countries have adopted similar measures already. Unfortunately, this amendment overlooks the fact that the Taiwanese stock market is made up of mostly small and individual investors, while institutional investors have become the backbone of foreign stock markets.

Second, the Company Act requires shareholders to submit proposals for inclusion in the meeting agenda days before scheduled AGMs and under certain procedures. The law has already restricted shareholders from tabling motions on important issues at AGMs, thus the draft amendment only further limits the rights of minority shareholders; it is not designed to maintain order at the meetings, but to protect the listed companies.

On Friday, the Ministry of Economic Affairs’ commerce department said that minority shareholders could still raise motions at AGMs as long as they collectively own more than a 1 percent share in the company. Yet the department’s response just showed how bureaucratic it is.

What makes this amendment even harder to comprehend is that the government is working to amend the law to restrict the rights of some shareholders — just because of the dislike of other unwelcome shareholders. It serves as a reminder that there is still room to improve corporate governance and the government’s mindset in this country.